kseniaru

You invest your money ($1.00) abroad in GBP. You earn Rf of 5% in GBP. You have $1.05 pounds after. You convert it back at a lower price. You are buying back Yen at 190 per GBP and not 200 per GBP.
Therefore the total return will be 1. GBP % bond * 2. JPY decline in currency %.
1. (1 + 0.05) * (1 + (190-200)/200)= (1.05) * (0.95) = 0.9975.
subtract 1 - 0.9975 = 0.0025% your return.